Theme 1 - The Market Flashcards
What’s the mass market ?
It is the market that is aimed at the general population e.g. regular toothpaste
What is the Niche market ?
This is a subset of the main market and it addresses a specialist need for e.g. Sensodyne toothpaste for sensitive teeth
What does the word Homogeneous mean ? And give examples
Homogeneous means ‘of the same kind; alike’
For e.g. similar products that compete in a market e.g. different yoghurt brands - they are all in the same shelf etc but are competing to win the customer
What are the characteristics of the main market ?
- In the main market, a product is sold to all consumers in the same way. For e.g. Coca Cola has pretty much the same bottle design everywhere and same ads that appeal to everyone - an ad that appeals to most countries but unlike niche market where the ad will be made to only appeal to a specific group of people
- Many products in mass market are sold on a global scale with just a few language tweaks to make it more appealing to everyone
Mass Market examples
- The car market is an example of a mass market as most people aren’t loyal to a car brand and instead they just pick a car that suits their needs for e.g. price wise, seats wise etc. and the brand that best suits them they will buy.
- The Premium car market is a Niche market as it targets the upper class people but also consumers are very brand loyal as they can be a ‘lambo guy’ or more of a ‘mclaren guy’
What does economies of scale mean ?
Economies of scale means that as your business grows, your production becomes more efficient and with increase an increase of production you can lower costs so therefore the lower cost attracts more customers and you will make more profit
What are the advantages of operating in the mass market ?
- large scale production means economies of scale and lower average units costs
- mass marketing is straight forward as everyone is equally targeted
- large volume of sales means high revenues and these revenues can be put into research and development of a new product etc
What is a really important thing mass market products need to have ?
Branding is very important to instil loyalty in customers e.g. Nutella and Kellogg’s
Also mass market products are homogenous so they need to differentiate on branding
What are the disadvantages of operating in a mass market ?
- Lots of competition in the mass market
- Homogenous products need to be differentiated through marketing which can be expensive
- High volume production may not be flexible enough to keep up with changes in demand ( for example due to external shock e.g. COVID ) - so for example if a certain biscuit in a businesses portfolio grew in demand then it may be hard to direct more production to this biscuit and take some of the production away from for e.g. marshmallows because they are already getting mass produced
Can also be for niche market
What are the characteristics of the Niche market ?
The Niche market is a subset of the mass market and it caters to a particular segment of the market that is not being met by other providers e.g. Rolex
What is an example of a niche market ?
There are many niche markets in the car market, mainly at the top end
Customers are looking for a very special car that will turn heads - attract attention - have a very fast engine. However this is a niche market as it only caters to a specific group of people who can afford these type of cars
What are the pros and cons of the Niche market ?
Pros:
- You can charge premium price
- Easier to target customers as the product will only cater to a specific group of people
- Small scale of production can be flexible and follow trends unlike mass market
- Less competition than in the mass markets
Cons:
- Very risky as demand may not be as constant
- Higher unit cost so no economies of scale
How are Niche markets profitable ?
• These can be profitable markets to be in, often prices charged are higher as consumers in that niche are willing to pay for exactly the right product.
• The profits can often signal more competitors to enter the market
Why can Niche markets be risky to venture in ?
- Businesses in Niche markets often have a small range of products which make them more risky ventures
- There can be a problem with a lack of economies of scale as not enough products are sold for the business to be viable
- plus the market for more expensive items may be very limited
What is the size of the market ?
The size of the market is the TOTAL of all the sales of all the producers in that market
How can the size of the market be measured ?
It can be measured in 2 ways:
- Volume of sales - or quantity of products sold e.g. 91 million burgers sold every year
- Value - total amount spent by customers e.g. The UK burger bar market is estimated to be worth $3.28 billion in 2016
What does a business do with the information about market size ?
Coca Cola can look at the data and decide if the market is expanding or contracting
Coca Cola can calculate their market share in relation to competitions
Coca Cola can look at other markets e.g. China or emerging economies and see if they are worth entering
What’s Market Share ?
This means the proportion (%) of a market that is taken by a business, product or brand. Calculated by the following formula:
Sales of x / Total sales in the whole market x 100
the answer is expressed as a percentage
What is a dynamic market ?
A dynamic market is one that is subject to rapid or continuous changes
What is an example of a dynamic market ?
The market of shoes as the designs and fashions keep on changes so its a dynamic,if market
Why are fashion shows important in the fashion market ?
They predict trends for the following year
How is online retailing a dynamic market ?
Online retailing is a dynamic market because its constantly changing, developing, expanding and offering customers new products and new ways to shop
Shoppers now make 51% of all their purchases on the web
What are the advantages of online retailing ?
✔ Shops are open round the clock so they don’t miss critical times when customers can shop e.g. evenings
✔ Orders can be taken automatically without the need for staff - less money spent by business
✔ Shop can reach international markets easily
✔ Low overheads, no need for a shop premises
✔ Stock can be easily withdrawn or updated to keep up with dynamic market changes in tastes
✔ Easy to set up (eBay)
✔ Flexible – owner can be anywhere in world
✔ Opportunities for fast growth
What are the disadvantages of online retailing ?
- Issues with sending goods back may put customers off
- Issues with online security worries put off older customers and those not keen to share their bank details
- Very competitive market, hard to drive traffic to sites
- Owners need IT skills
- Problems with fraud / spam / viruses
- Competitors can be aware of owners business model, prices, activity
How come very competitive markets benefit the consumer ?
- More competition means a business needs to be very efficient
- More competition means the business needs to listen to consumer needs and wants and constantly strive to meet those needs rather than being product orientated
- More competition means a business must be less wasteful
What does competition in homogeneous markets mean ?
It means that businesses must compete on non-price factors, meaning lots of exiting promotions to persuade consumers to switch supplier or product for e.g. switch to BT and receive a 3 month Spotify subscription
What does more competition mean for a business ?
It means that the business must produce a good quality product or service or their customers will go elsewhere
What is business risk and what is it influenced by ?
Business risk is the possibility a business will have lower than anticipated profits or experience a loss rather than taking a profit
Business risk is influenced by; raw material costs, competition, the overall economic climate and government laws e.g. minimum wage
How might taking a business risk cause lack of job security ?
• When a person starts a business they may leave behind a secure job, this means they may suffer stress and anxiety as a result. Setting up your own business can be a huge risk financially, and there are lots of factors to consider before starting out on your own.
• The risk of business failure means the business owner may not be able to meet their own financial bills
• The business owner may have a mortgage on a house and need to pay for it every month – if the business fails they could lose the house if they don’t keep up payments.
Why do most businesses fail ?
Most businesses fail due to poor cash flow management
How can cash flow be improved ?
Cash flow can be improved by making sure that customers pay on time
Why is it bad if a business is too highly dependent on debt ?
Because it might have difficulties if the interest rates rise
What is uncertainty ?
Uncertainty is when businesses are unable to predict external shocks or future events
Give some examples of uncertainty
If one company is taken over by another, the employees may feel uncertain about whether next years pay will be higher or lower
Households faced with uncertainty may save more money than they spend
Consumers may delay the purchase of a large item such as a car or house, these industries may feel the effects of shock and uncertainty the most
Why is there a degree of uncertainty in most business decisions ?
This is because the future cannot be predicted with any certainty, we cannot be 100% sure that any event will happen
Uncertainty increases with time, a forecast a week ahead will be more accurate than a year ahead
How might a business protect itself from uncertainty ?
• A business may worry about fluctuating interest rates and so may take out a long term loan at a FIXED rate of interest, then it will know exactly how much loan interest will be a month, making it easier to budget and plan
• This means that loan payments stay the same each month and the business knows its fixed costs each month will not change
Also you can buy insurance to protect yourself against uncertainty for e.g. a DJ may have a insurance in case his equipment breaks during a concert
